Merck stock plummeted Tuesday after the Dow Jones stock topped Wall Street's fourth-quarter expectations, but delivered lighter-than-expected guidance for 2025.
The company also withdrew its guidance for $11 billion in 2030 sales of human papillomavirus vaccine Gardasil due to ongoing challenges in China. Merck noted demand "has not recovered to the level we had expected."
Demand for Gardasil has been lackluster in China recently. During the December quarter, Gardasil generated $1.55 billion in sales. Sales tumbled 17% and narrowly missed expectations for $1.56 billion, according to FactSet. Merck says it has now paused Gardasil shipments to China until at least midyear to help reduce excess inventory.
"We believe investors trusted Merck had ripped off the Gardasil bandage in their 3Q24 earnings and subsequent investor presentations, and this continued uncertainty is likely driving more downside than warranted, in our view," Leerink Partners analyst David Risinger said in a report to clients.
On the stock market today, Merck stock tumbled 9.1%, closing at 90.76. Shares set undercut their 50-day line as they tested a two-year low, according to MarketSurge.
Gardasil Dynamics Weigh On Merck Stock
Edward Jones analyst John Boylan applauded Merck's decision to temporarily stop sending Gardasil to China. He noted Merck gained approval for a male version of the vaccine in China and inventory in China should normalize over time. The company is also selling the shot in other developing countries.
"These should help future growth," he said in a client note. "Still, it may take a few quarters of accelerating Gardasil performance to regain investor confidence in the product. We believe patience will be rewarded."
Across all products, sales climbed 7% to $15.62 billion and topped analysts' forecast for $15.49 billion. Excluding exchange rates, sales rose 9%.
Adjusted earnings came in at $1.72 per share, beating projections by 11 cents a share. Earnings skyrocketed from a 3-cent gain in the year-ago quarter, benefiting from a reduction in reserves for unrecognized income tax benefits.
Notably, revenue from Merck's bread-and-butter cancer drug, Keytruda, grew 19% to $7.84 billion, beating the Street's forecast for $7.64 billion.
Merck continues to dominate the oncology landscape, Medy Agami said in an email to Investor's Business Daily. Agami is senior partner at the advisory firm Ben-Roz & Associates.
But "the competitive landscape is growing exponentially — this could mean some major M&A (mergers and acquisitions) moves in the sector," he said.
2025 Guidance Comes In Light
Sales of Winrevair, Merck's treatment for pulmonary arterial hypertension, or PAH, came in light at $419 million for the year. PAH involves high blood pressure in the lungs. Analysts called for $431.3 million in sales.
"But it is early in the launch, so we are not too concerned," Edward Jones' Boylan said.
For 2025, Merck expects $64.1 billion to $65.6 billion in sales. The top side of Merck's outlook missed forecasts for $67.07 billion. Similarly, the pharmaceutical company projects $8.88 to $9.03 per share in adjusted earnings, below the Street's call for $9.16.
Boylan remained upbeat on Merck's outlook.
"We believe that Merck has a solid pipeline of new and existing products that investors risk overlooking due to Gardasil dynamics, and it has an impressive management team," he said. "We do not believe this positive outlook is reflected in the price of the shares."
Though Merck is the third biggest drugmaker by market cap in Investor's Business Daily's 33-company medical-ethical drugs industry group, Merck stock is lowly ranked with an IBD Digital Composite Rating of 27. This means shares rank near the bottom quarter of all stocks when it comes to fundamental and technical measures.
